Shareholders file class-action suit against Ashford.com

August 8, 2001byAnthony DeMarco

A group of Ashford.com shareholders have filed a class action lawsuit against the online e-tail store alleging that company executives and underwriters broke securities law during its initial stock offering.

The suit, filed during the last week of July in U.S. District Court for the Southern District of New York, alleges that Ashford executives and underwriters of its IPO violated federal securities law by failing to disclose agreements underwriters had with certain investors that led to exorbitant commissions. The suit was filed by the law firm of Freeman & Hertz LLP.

The suit also alleges that the parties failed to disclose an agreement between the underwriters and certain customers to allocate shares in the IPO in exchange for an agreement to purchase Ashford .com shares at pre-determined prices. This move (a practice on Wall Street known as “laddering,” according to the law firm) would artificially inflate the price of Ashford stock, the lawsuit said.

“This artificial price inflation enabled both the underwriters and their customers to reap enormous profits by buying stock as the IPO price and then selling it later at inflated prices,” the law firm said in a statement.

A spokesman for Ashford.com said the company has not filed a response to the allegations. He says company officials are “very comfortable” with all of the actions regarding the IPO and they are confident that this suit will not affect Ashford.com’s business. He adds that there are a number of these types of lawsuits being filed as the stocks of newly formed technology and dot-com companies have fallen sharply in the past year.